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Russia on Tuesday appeared headed for the worst economic turbulence in President Vladimir Putin's 15 years in power, raising fundamental questions about the future of the country as investors' trust in its basic institutions seemed to be eroding fast.

The fear was sparked by the plummeting ruble, which has dropped 17 per cent against the dollar in just two days despite a dead-of-Tuesday-night decision by the Russian central bank to impose a steep interest rate hike to stem the currency losses.

Putin remains tremendously popular in Russia, but his rule has long been predicated on a basic bargain with voters: They gain economic prosperity and stability in exchange for acquiescence to a political life devoid of real opposition. His half of the deal now appears in question.

At one point Tuesday, a dollar could buy 79 rubles, an extraordinary development for a currency that stood at 33 rubles to the dollar in January and held mostly steady for much of the year. Later Tuesday, the currency stabilised closer to 68 to the dollar.

The crisis consumed the attention of Russia's elite on Tuesday, with Putin keeping in close touch with other government leaders, Prime Minister Dmitry Medvedev convening an emergency meeting, and the state-run news station devoting almost wall-to-wall coverage to the fast-breaking developments. Some analysts wondered whether the central bank president or other senior leaders might soon be replaced.

The sharp interest rate hike — from 10.5 per cent to 17 per cent — promised to throw Russia's economy into a deep recession next year, and it was a sign that Russian policymakers feel they have few options left to fight the crisis.

On Tuesday, top economic officials said, in effect, that Russians would simply have to get used to worsened living standards. Deputy Prime Minister Olga Golodets said poverty would "inevitably rise" because of inflation. Elvira Nabiullina, president of the central bank, said that "these new conditions demand a change in behavior," one that involves "getting rid of expensive imported goods" and replacing them with cheaper Russian ones.

Putin did not publicly address the crisis on Tuesday, but his spokesman said that much of an annual news conference to be held Thursday would be devoted to the economy.

The central bank tactics have revived memories of Russia's 1998 financial meltdown, when the nation defaulted on debts and hyperinflation wiped out a generation's savings. Buoyed by rising oil prices, Putin devoted much of his early years to building institutions that would preserve economic stability. As a result, Russia still has far more crisis-fighting resources today than it did then, including the world's fourth-largest currency reserves. They stood at $416 billion at the beginning of the month, down $80 billion this year.

So far, Putin's popularity remains near record highs. But pollsters warn that economic distress may challenge the high numbers.

"If the economic troubles last a long time, this will be a new situation that Putin's regime has never been in," said Denis Volkov at Moscow's independent Levada polling agency.

Retailers said Tuesday that some Russians were rushing to purchase large-ticket items such as cars and appliances before they are marked up to new exchange rates. That sparked unpleasant memories from 1998, when consumers tried to convert their savings into purchases that would hold their value. But grocery stores appeared to be fully stocked.

Russia's economy was already in trouble before the March annexation of Ukraine's Crimean Peninsula and subsequent support for pro-Russian rebels in eastern Ukraine. Those decisions sparked Western sanctions and the worst tensions between Russia and the West since the Cold War. The unpredictable environment has spooked investors, which the central bank predicts will pull 102 billion euros from Russia this year.

The rapidly souring economic conditions may spur Russia to be more conciliatory on Ukraine. On Tuesday, Russian Foreign Minister Sergei Lavrov reversed a call for Kiev to cede more power to Ukraine's regions, a basic Russian demand since pro-Moscow Ukrainian President Viktor Yanukovych was toppled in February.

"This is for Ukrainians to decide," Lavrov said in an interview with France 24 television. "We're not suggesting federalisation, we're not suggesting autonomy," he said, although he and Putin have repeatedly proposed exactly that. A new cease-fire in Ukraine's east that started last week appears to be mostly holding, although NATO and Ukraine say that Russia has reinforced its positions in eastern Ukraine in recent weeks. Russia denies sending troops there.

Secretary of State John Kerry praised the Russian moves on Tuesday, raising the prospect of an easing of sanctions. "There are signs of constructive choices," Kerry told reporters in London, referring to the cease-fire.

The Russian government expects inflation to top 10 per cent by the end of the year and the economy to fall into a recession next year, a dangerous combination. Tuesday's rate hike — the largest since 1998 — was intended to cap inflation and encourage Russians to keep their savings in rubles instead of switching them to foreign currencies.

Russia's 1998 default helped spark a broader global crisis, hitting emerging economies. So far, fears that this crisis could spread appear muted, although neighbors such as Kazakhstan and Belarus also have experienced pressure. Asian stocks slid Tuesday, but mostly over Chinese manufacturing data. European markets were mixed, and US markets closed lower as technology stocks declined. Russian companies are indebted to Western banks, but analysts said Tuesday that even a partial default would probably not on its own deal a grievous blow to the global system.

Instead, the panic in Russia raised questions about the country's fundamental economic model, which is heavily dependent on energy revenue, analysts said.

"We have lost trust between business and the state. It's systemic," said Evgeny Gontmakher, a former economic adviser to Medvedev who works at the Institute of Contemporary Development, a liberal policy organisation. "It could be a big turning point, not only for the economy, but for Russia."

In recent months, the ruble has shed value hand-in-hand with oil prices. But the ruble selloff that started Monday — a day in which oil prices were flat — was sparked by worries about a complicated, opaque transaction late last week in which the central bank appeared to have printed currency to indirectly finance oil giant Rosneft, analysts said. Rosneft, majority-owned by the Russian state, has been stung by the sanctions and the falling energy prices. Rosneft head Igor Sechin, a Putin confidant, denied Tuesday that anything untoward had occurred.

"In the last couple of days, oil has stayed completely stable and yet Russia had a total panic," said Sergei Guriev, an economist at the Sorbonne in Paris. "This panic is triggered by the realisation that the Russian government has no idea what to do."

Many Russians, although concerned about the economy, said Tuesday that they did not blame Putin for the problems.

"Everything is more expensive — the price of groceries, everything. Salaries aren't growing, but everything else is rising," said Zhana Krivarogova, 55, outside a central Moscow store. "Right now things are hard, but you know the Russian people — we're used to it."

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